What do federal government funding changes mean for university strategy in 2018?

Recently announced changes to the Federal Government’s higher education funding arrangements have many institutions forecasting constrained budgets over the next two years, impacting planned activities and potentially even reducing domestic student loads. As a result, growing international enrolments while keeping a close eye on cost control has never been more important to Australian universities.

Beyond the headline funding freeze, a renewed emphasis on measurement and compliance in student retention, student performance and graduate outcomes means budgets for teaching staff costs and student support services (which directly affect student satisfaction, performance and retention) should be handled with extreme caution, lest universities risk having their federal funding reduced further due to poor performance on these metrics.

The funding freeze, which amounts to a de facto cap on Commonwealth-funded domestic places, means that universities will need to find other sources of revenue if they wish to maintain operating margins while meeting their projected EFTSL growth targets, which for 2018 have probably already been set.

But where is this new revenue to be found?

Research grants are a small proportion of overall revenue, are highly competitive and the overall pool of available money is unlikely to grow significantly in the immediate term.

Other government grants have been declining and are unlikely to grow while the government is in its current budgetary disposition.

Our view is that domestic full fee places (including postgraduate coursework) and international student places are therefore the best available source of new revenue, with international clearly providing a much larger pool of prospective students.

International student revenue growth is a partial solution to frozen funding

Given the relative lack of options for new revenue growth, it seems likely that many universities will be looking at international students to make up for funding shortfalls.

In fact, this has been happening for several years, with TEQSA’s Key Financial Metrics Report 2017 showing that across the education sector (including higher education and VET) the proportion of revenue derived from international student fees has grown from 15% in 2014, to 17% in 2016.

For universities, in 2016 international student fees accounted for 19% of total revenue, approximately $5.45 billion (Source: TEQSA), from 391,000 students (Source: DET).

It’s clear that a $2.2 billion funding shortfall is not going to be covered by a single leap in international student fee revenue. Even an optimistic 15% compounding annual growth in revenue from international student enrolments would take until around 2020 to make up the difference.

Nevertheless, a renewed focus on international can certainly reduce the impact in the medium term.

There are three levers universities can pull to keep growing international student earnings:

increase enrolments

increase fees

reduce costs.

Boosting international enrolments: act now for 2019

Of course, boosting international enrolments isn’t that simple. With an average pipeline from first enquiry to enrolment of over 12 months on average, it will be at least 2019 before work started today results in seats taken in lecture theatres.

Within Australia, growth over the past few years has been unevenly distributed, with smaller, regional and non-Group of Eight universities typically (though not always) recording a lower proportion of international students.

Enrolment data from 2017 is a mixed bag for individual institutions. Strong overall growth (14.3%) in 2017 international commencements is a great headline number, but the growth is concentrated in booming New South Wales and Victoria: 83% of the growth in international commencements in 2017 went to those states.

Queensland and South Australia are growing, but not as rapidly, while Western Australia is suffering through a decline in demand.

What is crystal clear from the data is that not all universities are in a position to take double-digit growth in international enrolments for granted – in fact far from it. Growing numbers sustainably is a long-term process requiring coordination between government, employers, regional educational development organisations and even competing institutions.

Many universities are working into significant recruitment headwinds, outside the major capital cities and without the prestige of rankings and profile to lean on, they have to do their own heavy lifting on destination marketing, and work harder to demonstrate their teaching quality and student experience bona fides. This typically means higher marketing spends per student, at a time where marketing budgets have been flagged for greater scrutiny.

The imperative, flagged in MYEFO, to reduce or restrain administrative staff costs, marketing costs, and scholarships and grants which are typically used to attract international prospective students, is the extra sting in the tail.

The challenge of growing international enrolments while restraining costs means that our outsourced partnership model to support recruitment and retention activities is more relevant than ever, allowing institutions to more flexibly scale their operational requirements in line with demand and seasonality, keeping a firm grasp on ROI.

Partnering also allows universities to benefit from the experience and scale of a specialist organisation that works across the sector, of course.

Increasing fees further is likely only to further alienate international students and diminish the attractiveness of Australia as a study destination, apart from lowering the competitiveness of individual universities in the local market.

So, how can universities increase their international enrolments in a highly competitive environment?

Smarter international marketing and recruitment

QS Enrolment Solutions believes that the Federal Government’s budget stance creates a firm imperative for institutions to invest in growing their international pipelines, while maintaining a keen focus on return on investment.

The obvious tension between these goals means taking advantage of all available tools. Our recommendations in this sense have not changed.

Leverage data on market trends, student decision-making and preferences to inform your international recruitment strategy and tactics. To that end, we will soon be releasing the 2018 edition of the QS Enrolment Solutions International Student Survey, updating and sharing our knowledge base on international student goals and decision-making. We will also be approaching universities to participate in the 2018 Future Student Survey aimed at domestic prospective students over the coming months.

Diversification in markets and course mix is more critical than ever, as concerns about over-reliance on demand from China and India begin to surface in media reports we expect to see more of a focus on diversification, particularly in source countries that have previously targeted the US and UK. There is a long tail of emerging markets with headroom for growth.

Achieving this diversification while maintaining focus on ROI means being smart about digital attraction, targeted in-market activities and lead identification and conversion. Traditional recruitment approaches still have a place, but for many universities, there is plenty of room to grow international enrolments while keeping cost of acquisition under control. Focus on high-ROI activities with a measurable impact on your prospective student pipeline, and use technology and insights to ensure you are targeting prospective students with the right information, on the right channels, at the right time.

If you would like to know more about how QS Enrolment Solutions can help your institution grow and optimise your international student pipeline, we would love to hear from you.